Comments on: Passing financial reform is no miraclehttp://blogs.reuters.com/james-pethokoukis/2010/04/22/passing-financial-reform-is-no-miracle/
Politics and policy from inside WashingtonTue, 14 Oct 2014 12:57:43 +0000hourly1http://wordpress.org/?v=3.8.3By: tahanlaoboyhttp://blogs.reuters.com/james-pethokoukis/2010/04/22/passing-financial-reform-is-no-miracle/comment-page-1/#comment-8162
Sun, 25 Apr 2010 16:56:05 +0000http://blogs.reuters.com/james-pethokoukis/?p=3748#comment-8162Hi, Bro
I want you to put an eye on thai protesters because they will be a big crack down. The red shirt changing their color nw that mean the sign of losing.
]]>By: Ghandiolfinihttp://blogs.reuters.com/james-pethokoukis/2010/04/22/passing-financial-reform-is-no-miracle/comment-page-1/#comment-8161
Sun, 25 Apr 2010 16:02:24 +0000http://blogs.reuters.com/james-pethokoukis/?p=3748#comment-8161The US should realise that one eats humble pie when you are the under-dog.

Compare the yuan to other currencies at the same rate, see why it is like that, consider the 3.75 peg to the Saudi Riyal, yes 3.75, find a top rate and bracket the range in. How difficult can that be ?

Skip the reform and place the onus for (renewed) customer/taxpayer bail-out on the banks, not the State.

Turn wine into water, not water into wine.

]]>By: STORYBURNcom_0http://blogs.reuters.com/james-pethokoukis/2010/04/22/passing-financial-reform-is-no-miracle/comment-page-1/#comment-8158
Sat, 24 Apr 2010 13:42:57 +0000http://blogs.reuters.com/james-pethokoukis/?p=3748#comment-8158Until Obama chooses to raise taxes on what will be another record of Wall Street bonuses, nobody will believe he’s not in bed with the street
]]>By: Acetracyhttp://blogs.reuters.com/james-pethokoukis/2010/04/22/passing-financial-reform-is-no-miracle/comment-page-1/#comment-8157
Sat, 24 Apr 2010 11:48:29 +0000http://blogs.reuters.com/james-pethokoukis/?p=3748#comment-8157REGULATION BY ITSELF WILL NOT STOP THE RECKLESS SPECULATION ON WALL STREET, WE NEED TO CHANGE THE TAX CODE AS WELL.

The banks and investment houses will always reap huge profits either at the expense of clients and/or shareholders as long as it is so profitable to do versus the risk. How do you change that equation, without one single extra regulaiton or regulator? Change the tax code on short term capital gains, derivatives income and gains, and futures trading PLUS establish uniform margin requirements on all trading that requires 80% collateral behind any trade.

Those 2 elements are what changed in the US markets since the 1980s and those 2 specific facts: low taxes on trading (certain option income is actually now taxes at only 10%!) and laxed margin lending requirements (FX Carry Trade by hedge funds lever 1 to 100 now) led to the collapse of the financial system and still pose an ongoing risk to any financial stability.

Leveraged speculation today is incredibly profitable – extremely low short term capital gains taxes and preferred tax treatment for option trading and margin debt expense. When middle income America is facing higher and higher taxes with fewer and fewer services, it is ironic they pay higher taxes than a trader of a hedge fund – and by a wide margin.

After WWII the typical short term cap gains tax was tied to the top marginal income tax rate, which was up to 70%. Under Reagan the top marginal tax rate dropped by nearly 50%. The cap gains tax difference between long term gains (investment held over one year) vs. short term gains (investment held under one year) decreased immensely (28% vs. 20%) making short term trading very, very profitable. There was no incentive to buy and “hold” since the tax rate difference was minimal.

On top of that Reagan’s tax changes up held the deductibility of margin interest expense (interest paid on borrowed money used to buy investments) yet deductions for credit card debt, auto debt, school debt, etc. were eliminated!! Again middle America saw their taxes go up while speculators benefited from lower rates.

By 1986 Wall Street had a tax code that mimicked the 1920s: extremely low cap gains taxes, available credit, and a new Fed. Reserve chairman who was not going to interfere with the big roulette table.
Right now, income from the riskiest transaction in stock trading – selling a put or call on a major market index (i.e. S&P 500) – is only taxed at 10%. This one example emphasizes how the US tax code supports speculation by giving the riskiest behavior the lowest tax rate.

The remedy?
1. Capital gains tax rate brackets based on length of holding period. When trades are held under one day, gains taxed at 90%. Graduate the tax down the longer the holding period, i.e. investment held over 10 years sees a tax rate of 5% for the first $100,000.

2. All derivative transactions (options, swaps, futures etc.) taxed at 80%, on both income and gains.

3. Eliminate the deductibility of margin interest expense.

4. Raise the Federal Reserve Margin Requirement (the amount of money the investor has to put up himself) to 80% for all investment classes (bonds, stocks, etc.). No exception for hedge funds, off-shore, FX, futures, etc.

5. Limit preferential capital gains and dividend tax rates (now at 15%) to only the first $100,000. Then establish new Federal gains/dividend tax brackets ($1.0 million, $10 MM, $100 MM, etc) where the highest tax rate reaches 75% as in the 1970s. This change would not only decrease speculation in the US financial markets, but it would start to shift the tax burden away from the middle class